International Trade Committee on May 15th, 2012

[Dr. James Stanford]

When you say “Canada's auto industry” in a global setting like that, you're referring to other global companies that are actually not based in Canada. It would be the decision of companies that manufacture in Canada, like General Motors, Ford, Chrysler, Toyota, Honda—the five global companies that manufacture light vehicles in Canada—to show up at the shows and show their new products.

One of the structural weaknesses even of our auto industry, which is a rare example in Canada's case of a high-value-added, innovation-intensive industry that has succeeded here, is that we are 100% dependent on foreign investment, on companies that came here and established branch plants. Those branch plants are important, but it does mean for our overall economy that we don't have the full capacity to undertake innovation development of new products and so on.

I can't comment on why the companies wouldn't put up booths at those trade shows. It could be that they don't see any significant opportunities for selling their product in Japan. Remember, Japan has an effectively closed auto market. It's difficult to identify precisely why that is--how much of it is due to government regulations, non-tariff barriers, restrictions on the establishment of dealerships and other marketing, and how much of it is perhaps due to a nationalistic or patriotic mentality on the part of Japanese consumers, who won't consider imported products.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thanks.

[Dr. James Stanford]

Whatever it is, the fact is that we don't sell anything there.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you very much.

I just wanted to put a quick question to Mr. Trew.

Thank you very much for coming to our committee again.

In the past, the Council of Canadians never supported any trade agreement for Canada. I'm wondering if your association or your members are taking the same position with Japan, and urging the NDP not to support this. We seem to see some support coming from the NDP wanting to encourage trade. I'm hoping we can work together, because, as I said before, this is a great opportunity to expand not only to Japan, but to the TPP initiative.

[Stuart Trew]

Thanks very much.

Yes, we do oppose the free trade model, and we will continue to do so, which is why I came here today to kind of potentially outline some ideas of rethinking how we're negotiating these agreements or whether we would need them at all.

I don't think I can say much more than that. We oppose them on the grounds that they give more rights to corporations than they do to other areas that are important to us, such as environmental protections or labour rights. These agreements are essentially corporate bills of rights, and as long as they look the way they have over the past series of them from this government and previous governments, we will continue to oppose them.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

I have one quick question.

[The Chair, Conservative, Rob Merrifield]

Make it very quick.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Ms. Dobson, in your perspective of our trade agenda from working in Japan, do you think it's a gateway for TPP, the Trans-Pacific Partnership?

[Dr. Wendy Dobson]

As I said, both countries are demandeurs at the TPP. The other nine look at our behaviour. The reason that the Japan-Australia agreement is so hard to strike is partly because of the Japanese reticence, particularly in agriculture, which nobody else has mentioned this morning.

I would use this opportunity to comment that you can hardly think of two countries with more differing comparative advantage. This is a term that has not been used this morning, but it is a determinant of your success in trade. Canada's comparative advantage lies in natural resources and energy, unless we work with judicious policies, some of which have been outlined by Mr. Stanford. When I listened to him, it reminded me of Canada's innovation strategy.

It is not as if we're not doing some of these things. I'm glad to hear that we're not talking about going back to the industrial policies of the 1970s and 1980s, where it was obvious that governments could not—

[The Chair, Conservative, Rob Merrifield]

Ms. Dobson, our time has gone for this questioner, but it may be picked up in the next one.

Mr. Easter, you have seven minutes.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you, Mr. Chair.

I thank all the witnesses for their presentations.

I'll start with you, Ms. Dobson. First, I'll certainly give you time to finish your line of thought on that last question.

Second, you did indicate that Australia and Japan have been negotiating for five years. I think you kind of insinuated that the sticky point was the agricultural side of the equation and completely different attitudes towards agriculture in Japan versus wide-open markets in Australia. I'm wondering on that point related to agriculture, agriculture production and exports, whether or not Japan's attitude in that area makes it more beneficial to our agricultural industry or less. Where do you think that will go?

[Dr. Wendy Dobson]

I have no idea. It will be revealed in the negotiations. It's very hard to discern from the joint study.

You know, they use language, which I'm sure comes from Japan, about being sensitive to each other's concerns, but that language turns up in reports of the Australian discussions as well. So I would fully expect....

First of all, coming back to CGE modelling—whatever its flaws are—the joint study reveals very small benefits, so let's look at the magnitude of the benefits relative to the effort.

My concern, coming back to the previous questioner, is that TPP may not happen, but it might, and we will be in a very, very difficult position if we're left out of it.

I see these negotiations as not producing a heck of a lot of liberalization, partly because of politics in Japan probably for the next several years, but the strategic dimension of being willing to talk about everything is not lost on everybody else who's already involved in the TPP.

I listened to some of the counsel from the other two contributors: Who do we think we are? We're far too inward-looking. We're not thinking about this in terms of a larger strategic gain.

[Wayne Easter, Liberal, Malpeque, PE]

Thank you.

I appreciate the paper you've given us on the numbers in the five regional trade zones. I would like to see your other document as well. I think Don asked for that, so we'd like you to forward that to us.

It seems to me, from what you said, that in Canada we're always.... On free trade discussions, there seems to be a segment that believes we need to negotiate free trade agreements just to have the agreements. The government has been very good at outlining the numbers of trade agreements that it has either signed or that are in the works. I did an analysis of the agreements. What I worry about is that we're falling behind in the Korean market, and we're continuing to fall behind even in the U.S. market. All the new agreements they've signed add up to about 126 and a half hours' worth of trade with the United States on the merchandise side.

So it's not exactly what it seems when you talk about the numbers. Your facts seem to show us that we're more hewers of wood and drawers of water than we've ever been. Free trade was supposed to solve this.

I want to really come to your point on what you called the “structural” underdevelopment. What needs to be done in terms of getting us to value added, trade agreements or no trade agreements? How do we as a country, whether it's an industrial strategy or whatever, do better by these trade agreements—with or without them?

[Dr. James Stanford]

Again, I think that's a crucial question to the future prosperity of our country, because the problem with being a hewer of wood and a drawer of water and a scraper of bitumen—I guess that would be the extra phrase to add to it today—is that the resources run out, world prices are very unreliable, and you're missing the job and productivity benefits of adding value to those resources.

It was mentioned that in our current trade with Japan, coal is one of our largest exports and automobiles are our largest import. How many tonnes of coal do we have to dig out and ship to the coast and transport across the Pacific Ocean to pay for just one of those vehicles that comes the other way? That is just a losing proposition for our country. And in terms of the theory of comparative advantage, the Japanese never let that stop them.

What is the comparative advantage of the Japanese? Do they actually have a natural advantage in producing high-technology, high-value, innovative, technologically sophisticated products? That's not a comparative advantage. In fact, they looked around their island and said, “We don't have easily extractable, highly profitable resources. We had better do something else as a country.” And proactive industrial strategy, starting with the work of MITI in the initial post-war decades and continuing today in various forms, has been crucial to Japan's success.

I think we need to emulate the range of tools that has been used by Japan, by Korea, by Brazil, by Germany, by Finland. Finland is a country that has a lot of resources but doesn't limit itself to extracting them and exporting them. They have higher aims in terms of the higher-value-added products and services that they sell. It requires government tools in the area of technology, innovation, skills and training, partnering with universities and research stakeholders. It also means helping to create markets for the products that we want to sell, by using domestic procurement as an active tool, as the Asians and Europeans have done so well.

On the whole set of tools, what was traditionally called industrial policy, I would call that sector development strategies today. It's what we have to be looking at, but the tradition in Canada in recent years has not been to do that.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Holder.

[Ed Holder, Conservative, London West, ON]

Thank you, Chair.

I'd like to share my time with Mr. Shory.

Mr. Trew made a comment, and probably, with deep respect, the one thing I can agree with in what he said is that because we're so early in the stages of discussing Japan, which makes it unique among some of the deals we've discussed, we have some opportunities to influence the direction it's going in So on that, we are in violent agreement, as we say. And with respect to much of what else you've said, you'll forgive me, but perhaps we'll take a different view. Your position is assumed, because if there's anything the Council of Canadians has been, it has been exceptionally predictable. You might view that as strength; I have another view of it, but I respect that you have your view.

I'd like to hear more, if I might, from Ms. Dobson with respect to Canada-Japan versus say Canada-TPP. I love your candour. In fact, I appreciate the candour of all of our guests today, but you made a comment that it would be very difficult if Canada is left out of the TPP. We've taken the position that Canada and the TPP, certainly, but if not the TPP, at least Japan, because it is a process. But what are the implications from your standpoint, Ms. Dobson, if Canada is left out of the TPP? Why is it so critical for our country?

[Dr. Wendy Dobson]

If it happens, first of all it will be the U.S. and the most progressive economic units in Asia. It's not clear that it will not include China at some point in the future.

It will only include Japan if they are willing to talk about everything. So I don't see Canada-Japan as an alternative to TPP. We would have to do bilateral trade agreements with all the members of the TPP, which would be a double-digit number of countries, possibly including China. I don't think we have the resources to do that. It doesn't make any tactical sense to proceed that way.

As I said earlier, I don't expect huge returns from this effort with the Japanese. It will not be a free trade agreement. It will not qualify for the TPP if we behave in ways that we have in the past, insisting, as we did with the Koreans, to accept certain sectors before the negotiations even began. The Japanese, as I say....

That's one of my big questions: what do the joint study people know that we don't? You should find that out. Are there exceptions? Is there talk about exceptions? If there are, then basically as a strategic alternative to the TPP, I don't give it very high marks.

[Ed Holder, Conservative, London West, ON]

I'd like you to elaborate on comments you made in response to comments made from our other guests. When you talked about Canada, you said, who do we think we are? I might draw a conclusion from that, but what specifically were you inferring?

[Dr. Wendy Dobson]

I go back to the comment I made in my prepared remarks, where Canada is late to the region. We were there decades ago and then we have been absent. We have developed a reputation in the region for turning up and then not following through.

I would say that some of the concerns that Mr. Stanford has raised about the lack of ambition by Canadian businesses helps to explain why we haven't followed through. It's not everybody. There are major Canadian companies that have major positions in Asia, which they've worked to develop over many years. My concern is that we are so inward-looking in this country that there's a conceit about what others should do in response to us, and we have made what I think are unreasonable demands, given the size of our economy and the sources of our comparative advantage. I would agree with Mr. Stanford: we have what I would say is substantial activity now by governments and by business to deal with the deficits, not just in ambition, but in innovation and nurturing Canadian companies to be more competitive internationally.

Let me just add one final point. When I think back to the free trade agreement with the U.S., one of the remarkable things about the negotiation was that long before the agreement was even finished, what I saw in Canadian businesses were strategies that became North American strategies. That's what I see in a number of businesses and elsewhere--in governments in Canada now. It seems to be related to the Prime Minister going to China. I would say there is now a flowering of interest and concern and ambition to be more successful in Asia. That is quite remarkable, and it's less than a year old. So I think we're at the beginning of a process.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

Mr. Davies, you have five minutes.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you, Mr. Chair.

Mr. Trew, I'd like to follow up with you a little bit on the investor-state provisions. I notice that Australia and India are two countries that have recently changed their policies and they no longer table investor-state provisions as part of their negotiations package.

My understanding of investor-state provisions is that the theory is that they are required when you're negotiating an agreement with a country that does not have a mature judiciary system or a sufficiently solid rule of law or legal climate to give assurance to companies doing business there that they won't have their businesses unfairly expropriated, etc.

When you're talking about a trade agreement with a mature democracy like Japan, which obviously has a fully functioning, mature judiciary, what would be your advice about whether or not we need an investor-state provision, and the wisdom of tabling such in any negotiations with Japan?

[Stuart Trew]

Just briefly, I would recommend, as I did in the presentation, that there is no need for it. This was the original intent in NAFTA chapter 11, which was that in Mexico, where the legal situation was not the same as it was in the United States and Canada, perhaps this would be a benefit for Canadian corporations, and perhaps it would encourage them to invest in Mexico if they had these assurances. They would have a means outside of Mexican courts with which to assert their rights as they would see them under the negotiations.

But what we've found over the last little while, over the last five years, is that increasingly companies are using this process in ways that weren't intended. This was the summary of the UNCTAD report that came out a couple months ago, that this is something that really does need to be looked at, and maybe at the very least we should be going back to what was the original intent of investor-state protections in the trade agreements and how they have gotten out of hand. So Canadian firms frequently do now use this to challenge decisions, whether it's in America or Ecuador. We've had some feedback challenges under way related to resource extraction there and certain decisions by local governments.

The El Salvador case with Pacific Rim is another one where a Canadian firm went treaty-shopping and moved a subsidiary into Nevada so it could use the CAFTA, the Central American Free Trade Agreement, to sue the government of El Salvador for $77 million—which is 1% of the country's GDP—simply because Pacific Rim can't get a mine started because of impacts that mine would have on water and other human rights in the country.

In the Japanese case, I'm not sure if it's something Canada would even consider. Maybe this committee could bring it up that we don't need to go in that direction.

[Don Davies, NDP, Vancouver Kingsway, BC]

Thank you.

Mr. Stanford, I want to talk about process and the negative list approach to negotiations. I know you work for a labour union, so you must be intimately familiar with negotiations. My understanding is that Canada is almost alone in the world in tabling this approach of a negative list to free trade. They've done that in CETA, where they essentially sit down and say that everything is open to free trade and non-tariff trade except as they may explicitly stipulate in the agreement. That's as opposed to a positive list approach, where companies will sit down at a table and carefully go through each sector, good, or service and discuss them.

I have to say that to me it seems a relatively dangerous way to negotiate, since I can't predict, and I don't think anybody can predict, what goods or services are going to be created five, ten, fifteen, or twenty years from now. We just have to look at something like the computer chip. Twenty years ago nobody could have envisioned what that would do.

So I just wonder if you have any comment on the prudence of a negative list approach to sitting down at a trade table.

[Dr. James Stanford]

I think the negative list approach reflects a higher degree of faith in the assumed efficiency and mutuality of a free trade agreement. If you start from the assumption, as is embodied in those economic simulation models, that free trade will naturally benefit both sides through the automatic workings of market forces, then the negative list approach would seem to make sense. Because if you believe that, then you want the treaty to cover as much ground as possible. I don't think that faith is justified, because the assumptions that go into that approach are not valid.

Let me emphasize clearly, I am absolutely in favour of trade. I view trade as crucial to Canada's prosperity and to the future success of the high-value industries I've been talking about. They cannot exist without trade. But in order to promote our trade I think we need to be more deliberate and strategic in identifying the areas of opening that will benefit Canadian-based companies and Canadian-based industries.

[The Chair, Conservative, Rob Merrifield]

Thank you very much.

We'll now move to our last questioner and then leave a few minutes for future business.

Mr. Shipley, the floor is yours.